The coronavirus outbreak highlighted a paradigm shift in consumer buying behavior. People are still shopping for essential items and deferring their discretionary purchases. Further, with social distancing becoming the norm, retailers have been bolstering omni-channel operations and ramping up delivery services to meet customers’ needs. Target Corporation TGT being fully aware of the prevailing circumstances is well equipped to serve shoppers be it curbside pickup or delivery at home.
To make consumers’ lives easier amid the pandemic and provide them with reasons to shop more at Target, the company is adding 750 fresh and frozen grocery items to its in-store order pickup and curbside drive up online services, per the media reports. Notably, the services — which will be available in more than 400 outlets by the end of this month and over 1,500 outlets by the festive season — are free and do not entail minimum order or membership.
Moody's retail analyst Charlie O'Shea said “Target's announcement that it was expanding food offerings for curbside pickup will increase sales and shopping frequency, the combination of which will likely minimize the negative impact on margin.” The general merchandise retailer has decided to roll out the expanded selection in the Midwest region, after successful pilot runs in the Twin Cities and Kansas City markets. We note that more than 250,000 items from a range of categories — home, apparel, essentials and more — are already available for pickup service.
Impressively, curbside pickup operating model has been gaining popularity amid the pandemic, as it offers a safe shopping procedure by minimizing physical contact and inside-store hassles. In fact, this has become an effective way to meet customer demands, and has been boosting sales. Retailers like Walmart WMT, Kroger KR and Sprouts Farmers SFM have also been benefiting from this model. Walmart’s Sam’s Club division is the latest to jump on the bandwagon.
Other Key Things to Note
Target has been deploying resources to enhance omni-channel capacities, come up with new brands and remodel or refurbish stores. The company has been aggressively adopting strategies to enhance the shopping experience through miscellaneous channels. The company registered a sharp rise in comparable sales during first-quarter fiscal 2020, courtesy of booming digital sales as consumers shifted to online shopping amid coronavirus outbreak. Digital comparable sales accelerated every month in the quarter from 33% in February to 282% in April.
We note that comparable sales rose 10.8% during the quarter. Impressively, comparable digital channel sales soared 141%, and added 9.9 percentage points to comparable sales. During first-quarter fiscal 2020, same-day fulfillment services — Order Pickup, Drive Up and Shipt — grew 278%. Sales fulfilled by Shipt were up more than 300% year over year and sales through Drive-Up were up more than 600% during the quarter under review.
Target is leaving no stone unturned to improve top-line performance and expand customer base. It remains committed to addressing the challenges related to the pandemic and position itself for future success. In this respect, it has been directing resources toward digital platforms in order to better engage with customers, augmenting supply chain and concentrating on improving financial flexibility. While these raise optimism, we cannot overlook margins. Certainly, investments in pay and benefits, shift in channel mix toward digital fulfillment and decline in the sales of higher-margin discretionary items are likely to keep margins under pressure.
We note that shares of this Zacks Rank #3 (Hold) stock have surged 26.5% in the past three months compared with industry’s rally of 13.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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